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01/05/2014

Recent Mexican Reforms and the Impact on the United States-Becker

The President of Mexico, Enrique Pena Nieto, is a member of the Institutional Revolutionary Party (PRI) that traditionally has had a leftist agenda. Yet in the short period since his election, Pena Nieto has managed to gain the cooperation of the other 2 main political parties in pushing through a series of remarkable changes that may transform Mexico into a world-class nation with profound implications for the United States.

The reform that recently received great attention is the opening up of the energy sector to private capital and private companies. With great fanfare, the PRI in 1938 nationalized Mexico’s oil fields. Since then, the national oil company, Pemex, has had a monopoly of the oil sector, and not surprisingly, the company has been behind world standards in efficiency and innovation. As a result, Mexico’s oil production has been badly lagging in recent years, and Pemex has not developed new sources of oil, including shale. The introduction of foreign capital and enterprise should shake up a seriously underperforming sector that could greatly raises Mexico’s production of oil and natural gas.

A second major reform is the attack on the teachers union that has had a stranglehold on K-12 education in Mexico. The result of their control is a weak system of public education that has especially shortchanged the bottom half of the population who cannot afford private education. This caused sizable inequality in access to education, and has contributed to the large spread in the distribution of Mexico’s income. It takes years before reforms in a country’s education system bear fruit, but these first steps to rein in the teacher’s union monopoly is necessary to allow the next generation of young Mexicans to have much better education and earnings prospects.

Another reform is to allow much more competition into the largely monopolized telecommunications industry. This should greatly reduce the price of cell phones and charges for phone calls, and allow the poorer families of Mexico to have much easier communication with others and with the outside world.

Other reforms in Mexico are still necessary and are pending, including greater competition in the financial sector, and continuing the efforts to give employers greater ability to layoff workers. Still, what has been already accomplished, and the new attitude toward reform, gives hope that Mexico will move toward a faster rate of growth in aggregate income, and improvements in the earnings of Mexicans at the lower end of the income distribution.

Advances in the Mexican economy will not only be of the utmost importance to Mexicans, but also to the United States. They will reduce illegal and legal immigration from Mexico to the United States. Much evidence from other countries, such as South Korea, shows that immigration from a country declines greatly when its economy is growing faster, and when there is increased optimism about the economic future. Young persons tend not to leave, even to countries with much higher incomes, if there are good job opportunities, and if they expect to improve their economic situation as they get older.

Net immigration from Mexico to the US ceased during the past five years as a result of the Great Recession (see my post “The decline of Illegal Immigration From Mexico"). If Mexico begins to boom, this situation might persist even after the US fully recovers from the recession. The end of immigration from Mexico would not be good for the American economy, but it would certainly tame one of the most divisive issues among the American public: how to handle illegal immigrants, and the inflow of additional illegal immigrants. Attitudes toward illegal immigrants in this country will change if there is a general expectation of a modest number of future illegal immigrants.

The market for American capital and enterprise in Mexico’s energy sector, telecommunications, and in other industries will improve as Mexico becomes more welcoming to foreign capital and businesses. The US is by far the major trading partner of Mexico, and reforms in that nation will improve opportunities for both countries to import and export a greater collection of goods and services.

Both Canada and Mexico are adjacent to the US, but while Canada’s and America’s per capita incomes are similar, Mexico’s per capita income is only about 30% of the American level. I believe this major difference in productivity is mainly due to Mexico’s tradition of favoring public and private monopolies over private competition, Mexico’s failure to improve the education of most of its population, and the price and other restrictions imposed in labor, financial, and other markets.

For the first time in a hundred years there is real hope that Mexico is getting its act together. Mexico might even eventually join its North American neighbors in doing justice to its people and natural resources, and attaining top-level economic status. This will have a major impact on the US, especially through reduced immigration from Mexico, and from having a much stronger neighbor.

Good summary -- but are we to ignore Mexico's GINI index that is worse even than that of the US and 2nd worst in the world? (for those doing the work and trying to move up)

Like the US some bit of "trickle down" could spur domestic consumption and provide jobs for many more. (While Mex claims an unemployment rate under 6% methinks they count quite differently than the more developed nations.

Improvement and competition in the financial sector? I've not been there in the past three years, but on last visit about any financial transaction involved the use of paper and, remember those sharp things for spiking receipts? yep, one or more of those.

I've long had the same hopes for Mexico's clambering into developed nation status with those hopes increased every time I visit and see a largely cheerful, hardworking people doing the best they can and not getting a decent shake.

Jim....... just a side note, but as near as I can tell "Obamacare" as the plan hatched deep within the right wing propaganda mill, Heritage Org has come to be nicknamed in honor of the first President to push forward a means of greatly expanding rational H/C access since 1965 when LBJ pushed through legislation creating both Medicare and Medicaid, has been neutral.

If one were to seek a villain in the curious economics of OUR patenting and producing so many prescription drugs, while those of many other nations, often under a system of universal H/C access, pay far less, in recent years the clearly marked path would lead to the Bush admin and their "hasty" midnight passage, after what some say was an illegal extension of the floor vote, while arms were being twisted, implementation of the prescription drug portion of Medicare, which expanded the size and cost of government, and "curiously" left out the enabling provisions of "allowing" Medicare to price shop, as the VA has long done, and which has resulted in the VA paying half or less what is extorted by Big Pharma from Medicare D.

"Funny thing, eh?" were a Medicare eligible Vet to opt for a prescription drug being provided by Medicare, that he'd cost his fellow citizens twice what would be the case were he to get the same from the VA.

Returning to Mexico, yes, those of this richest of nations can and often do benefit greatly by the impoverishment of others. Item: Just this week Cambodian garment workers have struck, and are being killed as they seek a pay raise to $160......... per .......... month, up from the current $80. The gov has upped its "offer" from $90 to $100 as the impasse continues.

Such movements, worldwide, will surely help all working folk including those of Mexico and the US.

BTW have you read anything about the "Wobblies?" or that great labor leader of the era Joe Hill?

Another radical Domestic Policy change South of the Border. We've seen these before and they all seem to go nowhere. My attitude, let's take a "wait and see" attitude before we say "Yea" or "Nay"...

Jack, Some like to play at the "Neocon/Hayek/Anarchocapitalist" -thinking that it will give them some traction and an inside track here in Hyde Park and on Campus. Nothing could be further from the truth. At least from what I've seen and experienced... ;)

Not much interest in the 120 million folks trying to live on a ONE trillion economy, just south of the 317 million who share (to some extent) in a 16 trillion economy and despite the costly and foolish beyond belief "fence" share much in common and are each heavily impacted by inter-related problems like our seemingly insatiable demand for drugs.

Jack, Hey, the "Black Market" is part and parcel of the overall Economy for a lot people. Whether we like to recognize it or not. And I won't mention Colorado - they may be moving in the right direction considering Industry appears to be dying.